Builders FirstSource (NASDAQ: BLDR) reported Q1 EPS of $0.11, $0.06 better than the analyst estimate of $0.05. Revenue for the quarter came in at $1.5 billion versus the consensus estimate of $1.49 billion.

Net Sales

Net sales for the quarter ended March 31, 2017 were $1.5 billion, a 9.7 percent increase over net sales for the first quarter of 2016. Sales excluding closed locations grew 10.2 percent in the quarter and were benefited by approximately 4.1 percent as a result of the impact of commodity price inflation on our sales. Sales volume, excluding commodity inflation and closed locations, grew approximately 7.2 percent in the single family homebuilding end market and approximately 6.4 percent in the repair and remodeling and other end market, offset by declines in multi-family.

Gross Margin

Gross margin of $376.1 million in the first quarter of 2017 increased by $26.3 million over the first quarter of 2016. Gross margin percentage was 24.5 percent, down 50 basis points from 25.0 percent in the first quarter of 2016. The decrease on a year over year basis was largely due to the impact of commodity price inflation. Although commodity price inflation generally benefits the Company’s operating results in the long term, it can cause short term gross margin percentage compression when prices are rising. This is due to the short term pricing commitments we provide customers versus the volatility of the commodity markets.

Selling, General and Administrative Expenses

SG&A in the first quarter of 2017 was $335.8 million, or 21.9 percent of sales, a decrease of 150 basis points versus the first quarter of 2016. The reduction was largely attributable to cost efficiencies, the decline in depreciation and amortization on acquired ProBuild assets, and commodity inflation cost leverage.

Interest Expense

GAAP net interest expense in the first quarter of $36.2 million includes $2.4 million of cost associated with the amendment of our Term Loan and Revolving Credit Facility. In addition, interest expense in the first quarter of 2016 was reduced by a $7.8 million gain on debt extinguishment related to the note exchange transactions executed in that period. Absent these expenses, Adjusted interest expense was $33.8 million in the first quarter of 2017, a $9.2 million reduction compared to interest expense for the first quarter of 2016, largely as a result of a series of transactions that have reduced the Company’s interest expense.

Net Income

In the first quarter of 2017, GAAP net income was $3.8 million, or $0.03 per diluted share, compared to a net loss of $17.0 million, or ($0.15) per diluted share, in the first quarter of 2016.
Adjusted net income was $12.1 million, or $0.11 per diluted share, compared to Adjusted net loss of $14.2 million, or ($0.13) per diluted share, in the first quarter of 2016. This improvement was largely a result of cost savings realized, revenue growth, and interest savings driven by debt refinancing.

EBITDA

First quarter Adjusted EBITDA grew $14.3 million to $76.1 million, or 5.0 percent of sales, compared to $61.8 million, or 4.4 percent of sales, for the first quarter of 2016. The year over year improvement was driven largely by cost savings initiatives and revenue growth, offset by commodity driven gross profit margin compression.

Capital Structure, Leverage, and Liquidity Information:

Adjusted EBITDA, on a trailing 12 month basis, was $395.9 million and net debt was $1,967.4 million as of March 31, 2017. This implies a multiple of 5.0x net debt / Adjusted EBITDA, down from 5.5x as of March 31, 2016.
Liquidity at March 31, 2017 was $ 612.0 million, which consisted of net borrowing availability under the revolving credit facility and cash on hand.
Due to seasonal working capital needs, cash used from operations and investing was $145.8 million. We still expect to generate $145-155 million in cash from operations and investing, in line with the company’s full year cash flow guidance.
We do not expect to pay federal taxes in 2017 due to our current net operating loss carryforward position, assuming no material changes in shareholder base or tax code changes.
In the first quarter of 2017, the Company amended and extended its Term Loan facility to 2024 with an interest reduction of 0.75 percent, or approximately $3 million annually. Additionally, the company extended the maturity of the Revolving Credit Facility. The weighted average long term debt maturity is currently 6.8 years, excluding lease finance obligations. The terms of our debt allow the Company to repay our most expensive debt first, which should benefit go forward free cash flow.

For earnings history and earnings-related data on Builders FirstSource (BLDR) click here.